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Building green homes 'difficult as material prices rise'

The UK faces a major new potential problem with building enough homes - and it isn't land-banking, nimbyism or a failing housing market.

Instead, it appears a combination of rising material prices and strict regulations introduced last year requiring that all new homes be carbon-neutral could place a high cost pressure that some will find difficult to sustain.

Such warnings come from experts in construction finance, speaking to Development Finance Today, who also noted that the associated work involved in building more homes will itself generate a large carbon footprint.

Among them is founder and chief executive of Zorin Finance Luke Townsend. He said: "If the pace of construction is to rise anywhere near the government's target of one million new homes by 2020, the carbon footprint from the housing sector alone could approach the majority of all UK emissions.

"Clearly this is unsustainable, and yet with housebuilders already faced with narrowing profit margins and rising costs in raw materials and labour due to Brexit, any further expense and complication levied on the construction process may only serve to reduce output at a time of an acute housing crisis."

None of that sounds promising, and Mr Townsend's words were echoed by Ashley Ilsen, the head of lending at Regentsmead. He warned that the costs of some projects have already soared by as much as 40 per cent.

All this provides a significant challenge for the construction sector, yet the importance of keeping homes green remains. Fitting good insulation is vital both to keep down carbon emissions and also to protect people against fuel poverty.

Fortunately, Mr Townsend does not believe the problem will last for too long. He noted some research has suggested the cost of building a carbon-neutral home will fall by around £3,600 over the next three years, a cost that can be recouped over three years by the residents through lower energy bills.

If so, it could simply mean a short-term problem, albeit an appreciable one as the weakness of the pound caused by Brexit has ensured the cost of imported goods is higher.

This factor has been noted in recent months by the Market/Chartered Institute of Purchasing and Supply Purchasing Managers Index Survey. It found that material costs have indeed soared, reaching the highest level in more than eight years in January 2017. Since then, however, they have dropped off slightly.

The problem, therefore, may be that the period in which building a carbon-neutral home is most expensive per se coincides with the time when material costs are at their highest. While this may have peaked, there is no guarantee this is the case. After all, if the Brexit talks go badly and the UK economy looks set to suffer, the pound could fall further during the two years when talks are taking place.

That all this should happen at a time when the government has just upped its annual target for new homes to 250,000 a year is of some concern. However, against that, the rise in the number of homes built to 190,000 last year - the highest since the financial crisis - may suggest there is enough momentum in the other direction to carry the construction sector through.

With the US government now taking a sceptical view of climate change at the very time when scientists in Australia are reporting serious bleaching problems on the fragile ecosystem of the Great Barrier Reef, the need for Britain and other countries to reduce emissions is as acute as ever. The role insulation may play in keeping Britain's new-build homes green will be crucial.